Meanwhile, CBRE numbers revealed that $2 billion in foreign money flowed into Canadian markets, representing approximately 19 per cent of the $10.6 billion in commercial real estate investments, as reported by the Vancouver Sun
Observers said that this overheating, which is gradually coming to resemble the situation in the city’s residential real estate segment, could be attributed to the less stringent lending environment at present.
“There’s so much money chasing so little product and there’s so much money available by lenders,” Goodman Report principal David Goodman stated. “We’re not just talking about the Canadian Mortgage and Housing Corporation, we’re talking about conventional lenders that are offering phenomenal terms,” he said. “I think it’s added fuel to the fire.”
“The world recognizes that Vancouver is a place where it’s safe. They can park their money, sleep well at night. There’s stability here and there’s massive immigration growth,” Goodman explained.
The resultant pricing “arms race” has led to cap rates for A-class office spaces at a high of 4.5 per cent on Q2 2016. To compare, industrial cap rates stood at 4.5 to 5 per cent, while retail remained at 4.25 to 5 per cent.
“Investors are counting on increases in capital value as opposed to earning an annual yield,” Colliers International managing director (Vancouver) Chris Blanchette said. “I’ve been in this business for 43 years and I can remember a day when apartment buildings would trade at eight and nine per cent cap rates, and now we’re well under three per cent in many locations. Certainly in the more popular locations we’ve seen trades at 2 to 2.5 per cent.”
“We’re seeing outside investors coming in and buying properties here at a very low cap rates because there is a significant demand to get into the Vancouver market place,” he added.
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In its latest round of data releases, CBRE announced that foreign investment in Canadian commercial real estate topped over $1 billion in the first quarter of the year alone, with fully 72 per cent of this amount going to Vancouver.